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Investing in Vice

Today, Phil Zimbardo posted here on ten effective methods for leading a person to “engage in apparently harmful behavior” — strategies that he said “have parallels to compliance strategies used by ‘influence professionals’ in real-world settings, such as salespeople, cult and military recruiters, media advertisers, and others.” Today on NPR, there was a story on All Things Considered, in which Debbie Elliot interviewed the Vice Fund’s portfolio manager, Charles Norton.

The coincidence of those events led The Situationist Staff to wonder: Could Zimbardo’s list of strategies help explain how Mr. Norton and others justify investment strategies that would otherwise seem immoral? We leave that to our readers to decide.

According to Norton, although the Vice Fund concentrateson “the Alcoholic beverages sector, tobacco, gaming, and aerospace and defense,” “[w]e’re not advocating these activities.” In fact, as Mr. Norton explained, “I don’t smoke, I drink only on occasion, [and] I rarely gamble.”

So why invest in just those products and not others?:

There are . . . five common threads that tie investments in these sectors together.One is there’s unvarying demand fortheir goods and services regardless of economic activity.They are global in nature – you know, people smoke and drink and gamble all over the world.They’re extremely profitable; there are high barriers to entry in these businesses.In the tobacco industry, advertising for cigarettes is illegal in most markets, so there is a powerful advantage to brands that have been around . . . .And one of the most important things that we like about these is that the government is a large beneficiary, particularly in gaming and tobacco. . . . The government has a financial incentive to make sure that these industries flourish.

Ms. Elliot returned several times to the question of why Mr. Norton felt no compunction regarding the harm caused by the products he was helping to finance. His responses included the following:

“The fact of the matter is that whether a company is selling a sneaker, a hamburger, or any other good, if it’s legally manufactured and sold, my job is just to analyze it – just to wear my analyst hat and look at the fundamentals.”

“[A]ll we try to do” “is what is in the best interests of . . . [our] shareholders.”

“When you’re a serious investor, you have to check your emotions at the door.Emotions are the enemy when it comes to making sound investment decisions.So, we don’t come at this with any personal biases.We come at this as a purely objective analyst.And, in our perspective, those types of judgments have no place n the investment process.”

Asked if there was anything that he would not invest in, Norton found no place for scruples in his work.“I wouldn’t invest in companies that don’t have strong fundamentals. . . . It’ll be based on the financials and not my moral judgment . . . .”

Asked one more time how he managed to place moral concerns so completely aside, Norton responded: “That’s what I’m trained to do.I’m a professional money manager.I have to remain objective at all times, because emotions will interfere with making a smart investment decision.”

For the last three years, the Vice Fund has earned an average return of roughly 19%, compared to the 10% return of the S&P. Although the Vice Fund does not advocate “vices,” the following images can be found on their website’s home page.